Bank Director. "Do it then, like a good fellow, but take care; see what I got for trying to stop him in my way."

In
the late summer and fall of 1857, the United States entered its worst
economic downturn in twenty years.In this cartoon, a politician grabs the reins of the economic
panic of 1857, in the guise of a rearing horse.The frightened creature has already bucked a bank director, who
sprawls on the ground amidst damaged mercantile goods and warns the
politician of the dangers in trying to halt the panic.In reality, government officials took only limited action in
response to the economic crisis.

Until the onset of the panic,
the national economy has been expanding rapidly during the 1850s, except
for a deep dip in 1854.The
acquisition of western territories following the Mexican War
(1846-1848), and the subsequent discovery of gold in California,
encouraged land speculation and railroad construction, and made the
United States a net exporter of gold.Railroads were the backbone of the economic growth, with the
construction of over 20,000 miles of track during the 1850s.They were aided by state land grants and financed by government
bonds, stock sales on Wall Street, and foreign, particularly British,
investments.

European immigrants continued
to flood into the United States, and they joined other Americans in
migrating to the Midwest and, increasingly, to territories beyond the
Mississippi River.Public
land sales and improved agricultural production multiplied the number of
farms, and the Crimean War (1854-1856) increased Europe’s demand for
American grain crops.Land speculators also participated enthusiastically in the
lucrative real estate market.Railroad
and agricultural expansion redounded to the benefit of commerce and
industry, which experienced similar growth.The number of banks almost doubled from 1850 to 1857, and
provided easy credit to their clientele.Particularly important was New York City, the nation’s
financial center and home to the Stock Exchange and financial institutions
where banks across the country deposited their reserve funds.

The
Panic of 1857 was caused by the convergence of a number of factors, of
which economic historians debate the relative importance.European demand for American grain crops fell drastically as the
end of the Crimean War reopened Western European markets to Russian
grains.In addition, bumper crops produced a glut of agricultural
goods and, therefore, lower prices and less profits for American
farmers, many of whom were in debt to Eastern merchants and bankers.The United States was also running a trade imbalance with
foreign nations, and the excess of imports over exports meant that gold
was being drained from the country.During the summer of 1857, banks raised interest rates as they
desperately sought to build up their gold reserves.Furthermore, much of the investment in railroads and land was
speculative, based on credit, and not expected to be profitable for
years.These and other
conditions put a tremendous strain on the American economy in 1857.

The first obvious sign of major
trouble was the failure of the Ohio Life Insurance and Trust Company in
late August 1857.The
financial institution had loaned $5 million to railroad builders, and
had been swindled out of millions more by the manager of its New York
branch.Unable to pay its
extensive debt to Eastern bankers, Ohio Life was forced into bankruptcy.New York bankers began to panic for fear that they would not be
able to meet their financial obligations, and shifted suddenly to hard
credit policies.They
demanded immediate payment on all mature loans, refusing to accept
promissory notes from merchants and other debtors who were short on
money.Depositors began to
withdraw gold from banks, dropping gold reserves by $20 million by
mid-September.Hopes for
gold from California sunk on September 12 when the steamer Central
America, with its $1.6 million in gold and 400 passengers, was lost
at sea in a hurricane.

The panic rippled outward as
banks suspended gold payments, stocks plummeted, and thousands of
businesses, including half of New York City’s brokerages, went
bankrupt.People crowded
around bulletin boards outside newspaper offices to read the daily
updates of suspended banks and failed businesses.Banks in Philadelphia and other American cities soon suspended
gold payments, as well.The
collapse of credit halted construction of buildings and railroads, and
reduced the nation’s trade to a trickle.Unemployment in the Northeast and Midwest skyrocketed, with an
estimated 100,000 in Manhattan and Brooklyn out of work by late October.By December, the loss from business failures in New York City
alone was $120 million.The economic repercussions spread to Europe and South
America, and immigration to the United States dropped substantially.

New York City’s unemployed
took to the streets to press for employment and government action.On November 5, 1857, 4000 rallied at Tompkins Square to listen to
speakers demand that the city government establish more public works to
hire the unemployed, guarantee a minimum wage, build housing for the
poor, and prevent landlords from evicting the unemployed.The next day, 5000 marched to Merchants’ Exchange on Wall
Street to call on the city’s financial institutions to loan businesses
money so the unemployed could be hired.On November 9, an even larger crowd gathered at City Hall.At the insistence of Mayor Fernando Wood, a mass
meeting at City Hall the next day was met by 300 city police and a
brigade of state militia, while federal troops under General Winfield
Scott guarded the federal sub-treasury and customhouse.

Despite the strong show of
force, the mayor was sympathetic to the protestors’ plight, and saw to
it that thousands of unemployed were hired over the next year in various
public works projects, including the construction of Central Park.However, his plan for direct aid to the unemployed was rejected
by the City Council.By the
end of November, though, the crowds of protestors had dwindled to only a
few.Prominent Democrats
were unhappy with what they considered Wood’s capitulation to the
angry masses, so the Tammany Hall Democratic machine joined forces with
the Republicans to run an independent candidate, Daniel Tiemann, for
mayor.In December 1857,
Tiemann defeated Wood in a close election.

By the end of 1857, the worst
of the economic crisis was over, although it would take two years for
the economy to fully recover.Not
all had been affected equally, though.Some investors, such as Moses Taylor and Cornelius Vanderbilt,
took advantage of low stock prices and failed businesses to expand their
financial holdings.The
South suffered some initial impact from the panic, but low tariffs
sustained its cotton trade with Europe and its overall economy.
Therefore, the Panic of 1857 served to widen the gap that already
existed between the economic interests of the North and South.